Tuesday, August 12, 2008

How Unusual is a 20+% Correction in Oil?

Interesting post by Tim Iacono, "How Unusual is a 'Bear Market' in Oil?":

A story in USA Today today began "Finally, investors have a bear to get excited about. Oil now is in unofficial bear market territory, with the price of a barrel of crude falling to $115.20, down 21% from its July 3 peak."

A good question to have asked prior to writing an article such as this, something that apparently doesn't occur to the new "oil bear market" enthusiasts, is whether a 20 percent decline in the price of crude oil is unusual or statistically significant in any way.


Anonymous said...

Based on your chart a 20% drop has happened every now and then.

The chart seems to indicate no usefulness as to futur direction of oil price though.

Sometimes oil went sideways to down for extended periods following those declines and sometimes it didn't.

DaveinHackensack said...

That chart is from the EIA, via Tim Iacono.

"The chart seems to indicate no usefulness as to futur direction of oil price though."

That's essentially Tim's point. Some observers have said that because oil is down more than 20% from its recent high, the secular bull market in oil is over. It may or may not be over (I don't think it is), but you can't tell either way from the recent price decline.

Anonymous said...

Of course the decline in oil prices has been widely attributed to the slowing economy, which is not exactly great news. Don't expect to ever see $3/gal gas again. Of course, that should be no surprise, given that until recently prices were at all-time lows.

John Wright said...

Dave, thanks for stopping by my blog. Interesting chart. I'm very interested in the reasons for the current drop in the price of oil and the future market. I can only hope the trend continues.

DaveinHackensack said...


Thanks for stopping by. I happen to think oil prices will be significantly higher than they are today in five years, for reasons I explained in this post, "Why Oil Prices will likely be Higher in 5 Years -- but not Necessarily in 10 or 15". So I own a few oil stocks.